América Móvil Puts Former Parent in Crosshairs

Mexican wireless telecommunications company América Móvil (AMX) is doing well on its own but knows it has an archenemy out there eager for a fight anywhere in the Americas, so the company is growing through acquisitions. The firm's chief rival in the Latin American telecom sector, Spain's Telefónica, has spent billions of dollars in tender offers across the region.

In the second quarter of 2011 ending June 30, AMX revenues hit $13.6 billion, up 8 percent from the second quarter of 2010. Earnings per ADR came to $1.04, up 24 percent from 84 cents a year ago. Net income came to $2 billion, up 14 percent on year.

The company added 5.1 million wireless subscribers during the quarter, which helped earnings. Time for a little rest on corporate laurels, right? Wrong. América Móvil executives have a plan: Eat the company from which is sprang.

América Móvil has announced plans to raise its stake in Telmex (TMX), the country's fixed-line service and its former parent company, to 100 percent from 60 percent, a tender offer that could drain $6.5 billion in cash from company coffers, according to estimates from Moody's Investors Service.

"With this transaction, AMX, a competitive and strong publicly traded Mexican corporation, will be in a position to provide better conditions and more advanced telecommunication services to its customers in Mexico," the company says in a statement.

Business should remain strong for América Móvil, one of Latin America's largest corporations.

Moody's, for example, has given it a stable outlook. "The stable outlook on América Móvil's ratings is based on Moody's expectation that the company will be able to maintain its credit quality by posting positive revenue growth and sustaining its margins, despite increasing competitive challenges across Latin America," Moody's Investors Service analysts write in a report.

Watch that debt

The Telmex deal is no small affair, and investors in the company's stock would be wise to pay heed to financing announcements. The announcement comes in the wake of América Móvil's acquisition of a 20 percent stake in StarOne, a Brazilian satellite company. América Móvil subsidiary Embratel owns the remaining 80 percent.

Standard & Poor's, just like Moody's, says it expects the transition to go smoothly.

"We expect the company to maintain its modest financial risk profile despite the resources it used for the acquisition of Telmex's shares, which AMX will finance either with cash on hand, debt, or the combination of both," says Standard & Poor's credit analyst Marcela Duenas in a statement.

Keep an eye on the headlines, as any news of América Móvil issuing too much debt to finance these acquisitions could spell trouble. "We could lower the rating if, in the medium term, business trends reverse and competition significantly hampers margins or management allows leverage to rise," Standard & Poor's adds.

América Móvil should unveil third-quarter results near the end of October.

Mexican wireless telecommunications company América Móvil (AMX) is doing well on its own but knows it has an archenemy out there eager for a fight anywhere in the Americas, so the company is growing through acquisitions. The firm's chief rival in the Latin American telecom...